Customer
Expectations for a Seamless Experience Includes Returns
Retailers encourage online purchasing with
free shipping and lenient returns policies because that is what encourages
online customers to shop with confidence. At this point, free and easy returns
have become an expectation that retailers must meet to keep customers happy.
A recent Comscore (US) survey revealed 85% of
customers would not return to a company with a difficult returns process.
Online shoppers indicate a significant leeriness of purchasing without the
ability to try-on, touch and experience the product the way in-store shoppers
would. In exchange for their patronage, they have expectations for easy, no
cost returns. They often purchase multiples (size, color, brands, and/or
products) for comparison knowing they can return the one that doesn’t fit or
doesn’t fit the need. And with the exponential growth of online sales, comes a
rise in returns. Nearly 62% of consumers returned or exchanged items in 2013, a
20% increase from the previous year. And for omni-channel retailers, returns
are complex and unpredictable – causing logistics nightmares and potential
service failures. Compounding matters, returns often peak as the season peaks.
How do you balance customer expectations with the cost of providing a seamless
experience that includes easy returns?
Returns
as a Competitive Advantage
For some companies, returns are a critical
element of their brand promise. Zappos considers its one-year, free-return
shipping policy key to building customer loyalty. L.L.Bean considers reverse
logistics to be a core competency – and an integral part of its brand
marketing. The company’s returns facility rivals many distribution centers in
size. Unfortunately, for many companies returns are a necessary evil and dealt
with only when they start to impede the business. Returns can tie up costly
resources across multiple functions of the company – from customer service to
warehousing to accounting.
Case Study: Zappos Uses Reverse Logistics to Gain Competitive
Advantage
Zappos, an online
retailer of shoes and apparel, built its success on the promise of free and
easy returns. The company actually encourages customers to order two sizes of
shoes to make sure they end up with one pair that fits. Zappos’ use of
logistics as a competitive service advantage is one reason 75% of the
retailer’s shoppers are repeat customers. While this policy drives up return
volumes and shipping costs, it reduces customers' hesitancy to place an order
and results in more sales overall.
Case Study: Amazon Makes Returns Easy for Customers
Amazon centralizes
returns in a single facility for efficiency. The Lexington, KY facility is
designed to handle both inbound returns and outbound disposition of returned
inventory. Amazon makes it easy for customers by providing a pre-paid shipping
label so packages can be dropped off or scheduled for pick-up by UPS. For
Prime-eligible items, the company credits the customer’s account within 24-48
hours of initiating the return; in many cases before the customer has even
shipped it, to encourage the order of replacement or additional items.
Returns
Add Complexity to Distribution
Receiving, evaluating and re-packaging are labor-intensive
functions when performed in quantities of one and two, which are typical
quantities for eCommerce returns. Systems have to be able to track the merchandise
(receipts, inventory, value, etc.) and support the issuing of credits and
intake of inventory. Does the item retain the same SKU number as before or is
it assigned a new SKU number? Should the item be transferred to a different DC
or channel due to demand patterns? Will the item be returned to the vendor or
scrapped based on its condition? These decisions are complex in nature and can
have a material impact on an organization’s bottom line and cash flow. Brick
and mortar retailers have the option to accept returns in store, but then what?
Do you put them on the sales floor at full price, mark them down or perform
additional handling tasks to ship them back to the DC? What if the store
doesn’t carry that SKU? Some companies encourage returns to the store because
it brings shoppers back into a sales environment where they are likely to make
additional purchases.
Other brand owners choose instead to destroy
all returned merchandise because the cost of all that handling and re-packaging
is too high or out of fear that the brand image might be tainted by
discounting. Whatever you do, you can’t ignore them. Sarbannes Oxley (SOX)
requires tighter control of the returns process. All movements of inventory
must be recorded in a timely fashion given their financial impact. That aside,
it’s important to note that the returns inventory awaiting receipt, inspection
and disposition, is likely current season merchandise which has a shelf life.
The sooner you can make it available for sale, the greater the opportunity to
sell it at full margin.
So, how do you turn handling returns into an
opportunity for competitive advantage?
1.
Decide whether or not you want to deal with returns. There are logistics
providers who specialize in returns. If you outsource this function, you don't
have headaches to deal with, but you also recoup far less of your investment
and have less control over the process. These 3PLs have developed processes and
standards for disposition that rival the discipline of most outbound
distribution operations. Their procedures and training are often much better
than those of in-house returns operations. Some have even invested in
automation to reduce cycle time and labor cost.
2.
Determine what returns are worth to you. All returns are not created equal. What is
the value of the merchandise and how much margin do you have to work with to
try to resell it? This will guide investments in labour, equipment, training,
etc., as well as the disposition strategy for returns (re-stock, discount,
return to supplier or scrap). Shipping cost will also influence how much you
can invest and whether or not to centralize operations in a multi-site network.
You must balance economies of scale against transportation cost.
Case Study: Hermes Automates Returns Process
Hermes Fulfillment
is the largest fully-automated reverse logistics warehouse in the world. Rather
than continue to manually sort returns in its picking warehouse, Hermes looked
to automation technology to increase efficiency and accuracy. The automatic
returns management system has a storage capacity of 1 million items in
approximately 176,000 storage locations. Most products remain in the system for
only a few hours. Utilizing up to 30 workstations on two levels, up to 15,000
items per hour are processed during peak times. The use of automation at Hermes
has enabled the company to process returns faster with greater flexibility.
They’ve also been able to improve quality with greater accuracy and make better
use of the space in the facility.
3.
Measure and manage returns as closely as you do the rest of your inventory.
Metrics and management are key. With most
returns operations, there’s opportunity to improve how you measure and manage
the cost structure for returns. Focus on processes and institute the same
management and control over returns as you do over other inventory. Consider:
·
How
long does it take to cycle through returns?
Case Study: Returns
Place Constant Pressure on Automotive Aftermarket For an example of how to
handle returns more efficiently, you might look to automotive aftermarket
distribution, which has one of the highest rates of product returns of any
industry. Returns as a percent of revenue consistently run in the mid- to high
20’s. It’s a constant pressure on automotive parts distributors as both
professional installers and do-it-yourselfers often order multiple parts to
ensure they have the part that fits and then return the unused parts when the
repair is complete. While most large aftermarket distribution operations have
the benefit of a closed loop transportation system, which represents a
significant savings in shipping cost, there are other lessons to be learned
from an industry that has both a complex and consistently high returns rate. At
one automotive aftermarket distributor:
·
Returns are
systemically-driven. Systems enable visibility into what is coming into the DC
for disposition, enabling the returns team to plan for and manage returns
better.
4. Work
toward a single view of inventory.
Visibility to inventory is critical in an
omni-channel returns environment. Having visibility to a single real-time view
of inventory, including returns, allows you to make better decisions about
order fulfillment and replenishment. Can you fulfill orders directly from
returns? Can you confidently ship orders from the store knowing that you have
the inventory in returns to replenish that stock? Data from product returns can
also be used to improve planning for new products or inform future purchasing,
design and manufacturing decisions by identifying products with high-rates of
failure. When you take a broader view of supply/demand, you can make better
decisions to optimize the recovery value and inventory productivity of returns.
5.
Mitigate the need for returns.
Many companies are investing in fitting
technology and enhanced fit guides online to help shoppers find the right fit
and minimize the need for customers to return as many products. With the proper
fit information, the customer is less likely to order two different sizes only
to return the one that doesn’t fit. Providing more product attribute
information and product reviews can diminish returns as shoppers make better
informed decisions.
6.
Consider return policies.
Return policies may have to change to
incentivize the lowest cost return option or de-incentivize returns for
consumers who are on the fence about whether to keep an item. Encouraging store
returns where possible has the added advantage of providing another sales
opportunity. Can you offer free shipping and charge for returns? You train your
customers with your policies.
6
Things You Can Do to Make Returns a Competitive Advantage:
1.
Decide
whether to outsource or handle returns in-house.
Summary
Expect returns to increase as online sales
grow. Companies that take a strategic approach to handling returns efficiently
will continue to delight customers without negative impact to profitability.
Those who fail to apply discipline to this aspect of their business will see
reverse logistics costs rise. Balancing cost and customer expectations is
challenging, but while returns are often resource intensive, they can have
value in increasing sales and competitive advantage as part of a brand promise.